Top Tabs

Friday, January 29, 2010

$150 Available

Boss Holdings (BSHI) is a company that makes work gloves and other protective wear. Though currently profitable, management has decided that the expenses resulting from listing on an exchange are not worth the benefits. As a result, it has decided to de-list the company and take it private. Normally, this would serve to reduce the value of the outstanding shares, since there will no longer be a liquid market for shareholders to dispose of their shares once the company goes private. But for small shareholders, an immediate profit situation has arisen.

The company plans to de-list if it has fewer than 300 shareholders. And since management appears to want to reduce the number of shareholders to that level, it is trying to shake out small shareholders by offering a cash incentive which is higher than the current share price: every shareholder who owns less than 100 shares will receive $7.65 for each of their shares - but the stock trades for just $6 at the time of writing (though it does bounce around)!

Here is the exact wording of the director-approved plan, as per the company's 10-Q:

The deregistration will be accomplished by a reverse 1:100 stock split of the Company’s common shares. All shareholders owning fewer than 100 shares prior to the reverse stock split would be cashed out by the Company at a price of $7.65 per pre-split share. The reverse split will be followed immediately by a 100:1 forward split of the Company’s common shares, which will return all shareholders owning more than 100 shares to the same number of shares they owned prior to the reverse and forward split transactions. If, after completion of the reverse and forward stock splits, the Company has fewer than 300 shareholders of record, the Company intends to terminate the registration of its common stock under the Securities Exchange Act of 1934, as amended. If that occurs, the Company will be relieved of its requirements to comply with the Sarbanes-Oxley Act of 2002 and to file periodic reports with the SEC, including annual reports on Form 10-K and quarterly reports on Form 10-Q.

Shareholders still have to vote to ratify the matter, however, the company is controlled by its managers, so the vote is not likely to fail. Assuming a shareholder could buy 99 shares for $6, a $163 profit minus transaction costs is there for the taking. (I say "assuming" because the stock is not very liquid. Nevertheless, the recent trading pattern of the stock suggests this is possible.) For most investors, such a move may not be worth the effort, but for others, the possibility of a 27% return exists if the "small shareholder buyout" takes place within a year.

So if I bought 1000 shares and the company went private, what would happen to my ownership stake? Would I essentially own part of a private company with no say or would Boss buy me out? It would seem that they would have to buy me out wouldn't they? Do they get to choose the price?

Justin - They don't have to buy you out. You have to hold onto the shares, and it's possible one of the other shareholders may buy you out. The upside here is that the business will be more profitable, downside is that there will be less liquidity.

If you're going to hold shares in a private company, you need to know what everyone's goals/motivations are. Will you guys be looking to operate and issue dividends every year, work towards an acquisition, etc.? If you want to, it might not be a bad idea to hold 100 shares just to see what exactly goes on behind the doors.

Be careful with this opportunity... It's on the BB, which isn't the friendliest of places to be making trades. Many brokers won't even allow trades on it.

Note to editor: Amazing find, love the articles, keep up the good work.

Thanks Ankit. I thought it was standard practice once a company goes private, but if there is no law then…Intriguing but a little too risky for me from the liquidity angle (buying over 100 shares). I know and like the company products and the company seems very undervalued from its current valuation

If you hold the shares in street name (which is most likely for retail investors), you will NOT receive cash for your shares unless you call up your broker and transfer the shares to your name. Otherwise the shares just undergo a reverse split, then a forward split, and you end up holding the same number of shares, except with far less liquidity, which most probably means a decline in share price. This scenario is explicitly described in the "Risks" section of the prospectus.

valuegeek is wrong. They intend to treat street holders in the same manner as reg. holders. read the filing. this risk is standard cya language that you see in all these deals, but it most often turns out that street holders ARE cashed out, as dtc notifies the brokers to perform the transaction for each beneficial holder.